Tariffs and Potential Inflation

[SilentBirdHunter]

Most economic analysis I've read concluded that broad import tariffs can increase inflation.

There are 2 potential reasons:
1) Most goods consumers purchase in Lowes, Home Depot, Walmart, Target, Amazon, etc. are imported.
Tariffs on these goods would be passed from the US importer to the consumer.
Historically tariffs have effectively been a tax on consumers.

2) As tariffs increase the cost of imported goods, domestic producers can profit more by raising their
prices to slightly below those of imports. Most US companies would likely choose increased profits.

How could substantial tariffs not increase inflation?

A dozen macroeconomic estimates have taken different approaches
to analyzing Trump’s proposed tariffs, from estimating the fall in
aggregate demand arising from the tax hikes to using various trade models
to the Tax Foundation estimating the effects of the tax increase on labor.
All studies consistently find that Trump’s proposed tariffs would have a negative impact on the United States economy.
source: https://taxfoundation.org/blog/trump-tariffs-impact-economy/

 

[SAJ-99]

How could substantial tariffs not increase inflation?

All of this is IMO.
Most economic forecast come from economic models. As the saying goes, all models are wrong, some are useful. Every model says these tariffs increase prices to the US consumer. Only way to look at it is either the seller eats some of the increase in cost (resulting in lower profits) or it is passed on to the buyer. For those things with high substitutability, maybe the consumer can just move to the other cheaper good.

I am not sure the question you asked is the only way to think about it. The question is will Americans notice the inflation? A good example to study is US tariffs/duties on Canadian soft lumber. It has a long history, beginning in 1982, and a lot of administrations have tried to adjust it in some way. Then ask if any US consumer would cite the tariff as an driver in the increase in housing prices. So yeah, the price of a good might go up, but the consumer might not see it directly or be unable to isolate and instead will blame something else.

Broad, large tariffs are going to be noticed = inflation. Smaller, more narrowly directed tariffs might not be. Right now the stock market is betting that all that pre-election talk was just talk for the sake of future bargaining. However, the bond market will be the key thing to watch becasue a lot of those pre-election promises are inflationary.

 

[morley.tyler]

This is not a debate. Tariffs are passed along to the consumers. Full stop.

I say this as a person who has made a career of developing and importing footwear and apparel for brands that most of you know, many of you wear, and some are wearing as they read this.
Here's the straight dope, don't tell.
When we develop a product (domestically or overseas) we have a Cost Breakdown Sheet (CBD) that tells us exactly what we pay for every spec'd item on that product. Thread, Leather, laces, eyelets, midsole, outsole... you get the point.
On that sheet, below the spec'd items are additional lines that we added:

Tariff's & Duty:
Freight:
Profit:

You see, because businesses are in the business of staying in business, we include duties and tariffs BEFORE we figure our profit. So today, leather footwear has an imposed 6.5% duty. So a pair of Leather Hunting Boots that retail for around $200 (for example) include ~$2.00 in duty that is rolled into our COGS (Cost of Goods Sold). This $2 becomes $8 of your retail price...
Now, if we add a 25% tariff on the same boot, we get an additional $7.25 per pair of boots, added to our COGS. Thus, the retail price of a $200 pair of boots increases by $29 at retail. I'm not an accountant like @Big Fin, but that's about real money, at scale. Another term for this is double-digit inflation

You can bitch about the business model all you want, but that's how it is at 99% of every retail outdoor company you know.

BTW- if you force massive tariffs on footwear and apparel, we'll just nearshore the jobs back to Mexico where we will pay ZERO duty or tariffs thanks to NAFTA II. Which Trump negotiated. These jobs are never coming back to America, except for a few boutique brands.

Sorry.

 

[mdhunter]

Ok, I think I get it. Other countries should charge tariffs on what we produce and want to sell to them therefore we can’t be competitive. We should never charge tariffs on what we buy from other countries because it’s costs our citizens more. Meanwhile we don’t manufacture anything and we can also be completely reliant on other countries for critical items. Yup, great idea now that I think about it.

 

[morley.tyler]

Ok, I think I get it. Other countries should charge tariffs on what we produce and want to sell to them therefore we can’t be competitive. We should never charge tariffs on what we buy from other countries because it’s costs our citizens more. Meanwhile we don’t manufacture anything and we can also be completely reliant on other countries for critical items. Yup, great idea now that I think about it.

You're upset when you start to see how the sausage is made, I get it. So here are some more things to think about.

• This started when NAFTA was passed after the 1992 election (BTW BOTH Bush Sr and Bubba supported NAFTA)
• Basic free trade economics (THE Tent pole of the Republican Party) encourages economic efficiencies (admittedly, a gross consultant-y phrase)
  • labor intense jobs go where labor is cheap
  • polluting jobs go where they don't have an EPA
• If you're raising kids, have them grow up to be electricians or plumbers. Great money and not many people wanna get shocked, burned, or covered in poo water.

 

[Sytes]

Tariffs pay for government operations.

Inflation is the epic center for supply vs demand and this causes companies to produce more in the USA. It's not a simple full stop.

People can complain because we continue down a path of reliance on foreign product... from an economic power standpoint, it places us at the mercy of economic starvation by China.

Whether we pay more, we make more... it's life and why 1950 Cadillac cost $3k vs $70k current.

Simple overview.

 

[jimh406]

Maybe you need to read different economic analysis. We had inflation without tariffs.

 

[mdhunter]

You're upset when you start to see how the sausage is made, I get it. So here are some more things to think about.

• This started when NAFTA was passed after the 1992 election (BTW BOTH Bush Sr and Bubba supported NAFTA)
• Basic free trade economics (THE Tent pole of the Republican Party) encourages economic efficiencies (admittedly, a gross consultant-y phrase)
  • labor intense jobs go where labor is cheap
  • polluting jobs go where they don't have an EPA
• If you're raising kids, have them grow up to be electricians or plumbers. Great money and not many people wanna get shocked, burned, or covered in poo water.

I am not upset about the sausage. I also don’t think we have such an absolute best plan in place being so successful, it just simply cannot be improved.

 

[morley.tyler]

Maybe you need to read different economic analysis. We had inflation without tariffs.

Inflation from 2020-2023 was a supply chain issue. Also, simple economics. Shipping companies went from charging ~$3500 to move a container from asia to the US on water to charging $20K+ per container

Example for this crowd:
Boots per container ~3000 freight per item went from $1 to $8. retail price changes about $30
Traeger grills per container ~50 freight per unit went from $70-$500. prices went crazy.

It goes both ways. If they (China) hit our pork and soybeans with added tariffs, Iowa, and Nebraska are gonna be in a bind.

You wanna go deeper? Who's the largest pork producer in the US? Smithfield Farms. You may wanna look up who owns that company.

 

[brymoore]

I prefer free trade.

 

[Nick87]

You may wanna look up who owns that company.

It's unfortunate.

 

[SAJ-99]

Tariffs pay for government operations.

Inflation is the epic center for supply vs demand and this causes companies to produce more in the USA. It's not a simple full stop.

People can complain because we continue down a path of reliance on foreign product... from an economic power standpoint, it places us at the mercy of economic starvation by China.

Whether we pay more, we make more... it's life and why 1950 Cadillac cost $3k vs $70k current.

Simple overview.

Tariffs are complicated, but they certainly don't come close to paying for the government operations. What we know is that they make things cost more. This is undeniable. They also have a long history of not being very effective. Tariffs on steel didn't save the steel industry. Tariffs on lumber haven't helped lumber companies much. Maybe it slowed the decline? I remember a paper that concluded tariffs may have sped the decline of the steel industry. Nothing is clear in economics.

Our economy has benefitted from outsourcing to places with lower costs of production. It has made most goods here cheaper. Again, undeniable. We are now a service economy. This does create problems though. I wouldn't describe it as "economic starvation" at the hands of anyone. Regardless, Covid taught us to diversify the supply chain. I agree with @morley.tyler. They are not getting diversified back to the US, and do we really want to be a textile producer again? Trump already ran on this insourcing platform and had 4 years to fix it. We saw manufacturing continue to leave this country. The CHIPs act has been the only manufacturing policy produced in the last 40 years to try to incentivize US manufacturing.

Speaking of starvation, ironically, China imports a lot of agricultural products from us. So when we raise tariffs on their products they raise tariffs on US ag. This immediately drops the market price. What we saw last time, large buyers in Brazil would buy US soybeans then ship them to China as if they were Brazil beans, thereby avoiding the tariff. China got beans at lower prices than if they bought directly from US and the US farmer was the only real loser, but they didn't change their vote. Again, I don't think the question is if tariffs result in higher prices, I think it is will it matter?

 

[Sytes]

...but they certainly don't come close to paying for the government operations.

I do not know how you misunderstood my comment. To be clear: Tariffs go directly into our government operations. Period. You ran with the idea that I shared tariffs pay for all our government operations. This is a very, very far stretch - exaggeration of my comment, for what purpose? Meh...

A simple example of trench politics: Extreme Liberals hitting Trump declared tariffs, yet hiding the fact the Biden/Harris administration has not only kept Trump's China tariffs in place but increased the tariffs on steel, aluminum, medical equipment, electric vehicles, lithium-ion batteries, and solar cells.

Our economy has benefitted from outsourcing to places with lower costs of production. It has made most goods here cheaper.

This is an economic war between China and the U.S.. Both Trump and Biden's war cabinet has continued this battle. For our country to survive our economic battle with the only other mass superpower (Russia treads water) who's primary effort is the holdings of most every mineral necessary for U.S. "green energy"... if we (As agreed by and increased by the Democrat Administration) do not continue our pressure and give up by relinquishing our tariffs with China, "economic starvation" is hard to ignore.

 

[Forkyfinder]

I prefer free trade.

I do too - but a lot of what i understand is that we have had free trade in one direction. Tariffs on stuff we make and sell, no tariff on stuff we buy.

Im not in favor of tariffs - but if they are used as a negotiating tool to reduce other countries tariffs and get more equitable trade im okay with it.

 

[Sytes]

I support USMCA vs NAFTA for our Mexican/Canadian trade relations.
This is key to the above comment. I'm a strong advocate for our tariff hikes on Canadian softwood, a Trump initiated effort that increased under Biden.
Various aspects trench politics want to play games as Terrible Trump Tariffs (Did I start a Triple T Liberal slogan? Haha!) YET, many of Trump initiated tariffs have continued and increased under Biden's administration.

Reminds me of the song, "The Politics of Dancing..."